Contracts 101 for Businesses: A Quick Guide

Vivian Nguyen • January 21, 2025

Running a business involves a lot of moving parts, and contracts are the glue that holds them together.  Whether you are dealing with suppliers, customers, landlords or employees, understanding the basics of contracts is crucial for protecting your interests and ensuring smooth operations. 

What is a Contract?

It is a legally binding agreement between two or more parties.  It outlines the terms and conditions of the agreement, including the obligations of each party. 


For a contract to be valid, it generally needs these key elements:


  • Offer: One party makes a clear offer to another. This could be anything from selling goods to providing a service.
  • Acceptance: The other party unequivocally accepts the offer. This acceptance must mirror the original offer.
  • Consideration: The quid pro quo. Something of value must be exchanged between the parties. This could be money, goods, services, or a promise to do something. 


Why are Contracts Important?

Contracts are essential for businesses because they:


  • Provide clarity: They clearly define the obligations of each party, minimising misunderstandings and disputes.
  • Offer protection: They provide a legal framework for recourse if one party breaches the agreement.
  • Build trust: A well-drafted contract fosters trust and confidence between parties.
  • Facilitate business planning: Contracts allow businesses to plan and budget with certainty.


Types of Contracts


  • Written contracts: These are the most common and recommended type, as they provide clear evidence of the terms of the agreement. 
  • Verbal contracts: While still enforceable, these can be difficult to prove in court due to the lack of written documentation.
  • Implied contracts: These contracts are not explicitly stated but are inferred from the actions and conduct of the parties.


Key Considerations for Businesses


  • Australian Consumer Law (ACL): If your contract involves consumers, it must comply with the ACL, which protects consumer rights.
  • Specific Legislation: Depending on your industry, there may be specific legislation that affects your contracts (for example, franchises). 
  • Professional Advice: It is always advisable to seek legal advice when drafting or reviewing contracts. A lawyer can help ensure your contract is legally sound and protects your interests. The costs of drafting or reviewing a contract is small in comparison to the costs of either fixing an issue or enforcing a contract later. 
A woman is sitting at a table with a pile of papers on it.

Common Contract Mistakes to Avoid


  • Using unclear language: Ambiguous wording can lead to disputes.
  • Failing to address key issues: Make sure all important aspects of the agreement are covered.
  • Failing to cover certain scenarios: Make sure any potential scenarios are covered so that it is clear what would happen. 
  • Not getting it in writing: Verbal contracts are risky.
  • Using a template without review: Generic templates may not be suitable for your specific needs.
  • Signing without reading: Always read the entire contract before signing.


What is the upside in having your Contracts drafted or reviewed by a lawyer?

Investing time and resources upfront to properly review or draft a contract is significantly more advantageous for a business than attempting to resolve issues after they arise. 


Proactive contract review identifies potential ambiguities, omissions, or unfavorable terms before they become problems, allowing for negotiation and adjustments while all parties are still agreeable. 


This preventative approach avoids costly and time-consuming litigation, damaged business relationships, and the uncertainty of a Court’s interpretation. 


By clearly defining obligations, responsibilities, and remedies from the outset, businesses can protect their interests, mitigate risks, and foster stronger, more productive partnerships, ultimately saving time, money, and stress in the long run.


Need help with your business contracts?  Contact our Commercial Team for a free consultation. In some circumstances we offer fixed fee for contract drafting and/or contract review so that you can budget for it. We can help you draft, review, and negotiate contracts that protect your interests and set your business up for success.



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